Readers' comments

Something similar is done in INDIA, although its not as exhaustive and is much more selective. The idea is old, but its effectiveness depends on enforcement and the metrics used for detection.
Whats more important for the government to spend these tax revenues in a less wasteful manner.

redditometro over all seems to be good system to collect taxes but few people have concerned that it effects impoverished pensioners, average incomers and harassed housewives,which is concerning so minimum n flexible tax rate should be apply to such classes while tighten the rates for habitual tax dodgers......

I lost the source, possibly Montezemolo on BBC couple of years ago, but remember that LESS than 0.2% of the population earn $250,000 or more.

Here we consider the $250,000 mark as good, high salary, of large chunk of the population, i.e. those that pertain to MIDDLE CLASS.
Having traveled to Italy a few times, cost of living seems pretty much in line and ceteris paribus...i.e. all the BMWs and Mercs you see zipping on their motorways, one can only wonder at the rate of evasion.

If statistical analysis can flag "suspiscious" behaviour, Italians should only be too happy, as long as burden of prove is on Tax Authorities and not the single citizen.

If you come in Italy I will introduce you so many people that earn maybe 1.200 euros per month and still drive a medium BMW/mercs... Why? Because it's a game! and these people are the victims. They will find themself loosing the house that has been built/bought by their parents and forced (if they're lucky enough) to open loans over loans.
Banks and car dealers are more than happy. Especially banks that in this way are CREATING new customers that will never manage to escape the banking ssystem.
I think that in the US credit cards and easy loans also was a big issue. Different terms but same issue.

As I said this is a game... Money doesn't disappear like a bunny into a magician's hat.
It's brought from one place (or person) to another.
Political powers are making a mess (worldwide) and still earn their full wages... blaming the population is the usual way.

Stats are good but numbers do need interpretation... And interpretation (and believe me, leaving in Italy, I interpretation is a daily issue) changes from person to person...can you interpretate a whole nation with numbers? Maybe some aspects yes, but I believe not the key ones.

As I said I believe that my country should invest on it's original values. Not only numbers.

I suppose having "traveled to Italy a few times" you are an expert on Italian auto sales.

Italian motorways - while some of the best engineered and built in the world - are also some of the most expensive. Lower class people have always avoided them and now middle class people avoid them also. Historically speaking, a large number of autos sold in our country had small engines (650cc, 700cc, 750cc, 900cc, 1.0 litre) that were too small to drive on the motorway. THAT is why there are so many BMW and Merc's on the them - not to mention the fact that most of those belong to foreigners these days.

In 2012, both Mercedes and BMW sold less than 40,000 cars in Italy, out of a total 1.4 million. This means the market share of the two auto brands in Italy are at 2.9% and 2.7%, as opposed to their European-wide market share of 5.0% and 4.6% respectively.http://www.carsitaly.net/fiat-car-sales_europe.htm

A full 2% of market share below the entire rest of Europe. Therefore, please spare us your prejudices. Italians are sitting atop some €8.6 trillion in aggregate private savings, having had the highest savings rate in the world for four decades (around 26%) - until the introduction of the Euro. We still managed to add just under 10% of private income last year to our stock of savings - despite the crisis.

Not a tiny bit of prejudice here.
You have some of the best motorways and cars, you make small and thrifty cars that allow you to indulge in BMWs and Mercs for those that can, you do indeed sit on one of the highest private savings in the world, you still manage to get richer (+10%) in this economic crisis...why should a Tax computer system worry you ? Not a reason in the world.

Or ..maybe JimmyB182 is right and to the point. It is "interpretation" of the numbers that is really required.

I guess you are correct. So publicly available data from Tax Authorities for last year spell:
0.07% earn more than 300K (Euro)
1% more than 100K
49% less than 15k
30% less than 10K
Professionals on average declare 41K, Entrepreneurs 18K, Employees 20K, Pensioners 15K
Overall average is 19.2K
I guess that to earn 1.200per month your income is about the average of the Employee ? Around 20K when you add taxes ?

The point is that you cannot use numbers correctly if you don't understand social, economical and historical patterns.

Also I don't think that tax evasion is the first "illness". I am not saying that it doesn't exist but I believe that unfortunately we are in a situation where tax evasion is similar to cholesterol, there is a "good" one and a bad one (and I know this shouldn't be, but it is!) there are cases in which some people small entrepreneurs/professionals have to chose between paying 100% taxes and shut down the business or declare something less and stay alive. if this is a minority or not I don't know, but I know many people (luckily not me) which are in this situation and they really don't deserve it.

Everybody agrees that taxes should be paid 100% by everybody.
Everybody also agrees that this money should be spent in the best way possible.
I think that the steps should be FIRST the governement reduces it's costs and make them trasparent and fair and AFTER you have all the rights to go heavy on those who don't pay.

Big powers (politics and finance) have a reason not to make this possible.

I understand and believe your points. One conclusion is that looking from the outside, these conditions hinder chances of much Foreign Direct Investment going to Italy.

If foreigners are evaluating setting up business in Italy, this thread is not helping build up their confidence. Especially the +10% remark from Milovan suggests the "black" economy is really large and following the law is hardly a recipe for success.

So basically, if you earn 20% less than the average person of your age and situation, you get flagged. This seems like it would generate a lot of false positives, mainly people who are simply poor. Surely with "big data" you could do something more sophisticated. Unless of course the article is oversimplifying.

I hope this is used the world over. Tax rates on the diligent compliant taxpayer will effectively fall as the tax net broadens.

If the system is implemented universally and without bias (a big if), the only ones to fear the introduction should be those who are outliers who will be flagged up. Those with a legal explanation for the unusual spending patterns will be fine, isolating the tax-avoiding crooks!

We need someone strong enough to fire all the italian government. We were a rich country but the waste of money, the too much high salaries of the politicals, the rich board after 2.5 years of work for the government, the thefts done by the most people who stays in the parliament reduce italy to a poor country. Now we have the new big deal of the redditometro that will increse the 75% of the taxes we yearly pay. But please fire this foolish!

Public expenditure is first big issue. Since ever, easy well paid lifetime jobs were dispensed to friends, family and sometimes also as an easy solution to economically depressed areas (Tirrenia, the state owned ferry lynes has almost 100% of employes from Campania (naples)).

Also in the public sector there is no sense of saving money. Whatever they need they buy at the highest prices.

What does a selfemployed do when he/she doesn't earn enough money? They either find a new market or reduce costs. Being the first quite difficult (unless Italy doesn't invent a tax to be paid by Germans) the reduction of costs is e first step.
The less espenditure, the less taxes, ...and statistically the less tax evasion.

Italian crisis in not about tax evasion or some sort of DNA joke.
It's about history and culture meeting the "modern society". Families have been the center of economic life and society for centuries.
The real estate is the fundamental of each family way of saving, investing and preserving a future for their sons and doughters.
Consumerism has open a breach on traditional values and this crisis is making the way for a change.
Personally I would prefer to get back to those values, even if this means being a less standardised economy and society. Italy ows his brandname, beauty and why not...passion, to variety. Sometimes being "different" is the only truly successful factor.

For many years Italy was only second to the US as export market for BMWs and Mercedes cars.

All along, data on GDP per head did not suggest enough purchasing power to sustain that. So, ok they love their cars, ok they love their house to own...ok it's the land of miracles, but it's also ok to start taking an analytic look into real data maybe ?

Don't be absurd. Our country is poorer in the South and richer in the North.
Until the Euro, per capita income in the North, where Mercedes and BMW dealerships were always concentrated, was the highest in the European Union.
Are you so prejudiced that you consider us a Third-World country? Germany is the last country to resist Italian manufacturing. We have a trade surplus with all our G7 partners, except Deutschland - and their trade surplus with us evaporated last year. We should finally achieve a trade surplus with Germany in 2013.

"Germany is the last country to resist Italian manufacturing. We have a trade surplus with all our G7 partners, except Deutschland - and their trade surplus with us evaporated last year. We should finally achieve a trade surplus with Germany in 2013."

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Yes, absolutely - but not because Italy EXPORTS MORE, but because it IMPORTS LESS than before the crisis (reason: credit is tight).

Italian exports are still sharply down from 2008 levels. That's not the case in Germany, which is headed for another all-time record in 2013. (And that's not chauvinism, but a fact.)

A word of advice:

If you'd like to hear a different explanation, go ask Prof. SANMARTINIAN from the Portuguese Institute of Funny Maths. He's good at fudging numbers and can sure come up with a whole new narrative within a matter of seconds, as he has for the Portuguese sovereign debt crisis, which he says doesn't even exist.

Exports are up this year, bringing us back over the 2008 pre-crisis level. In the month of October, for example, exports increased by 12% over the same month the year before

From "thisisitaly-panorama.com" (The Economist does not accept the link):
"In October 2012, compared with the same month of the previous year, export increased by 12.0% and was due to a rise in purchases for both markets: EU (+7.9%) and non EU (+17,2%). The growth of imports (+0.9%) is due to non EU countries (+2.3%). In October, trade balance amounted to +2.5 billion euros: +1.0 billion for EU countries and +1.5 billion for non-EU countries. Net of energy products, the balance was 7.6 billion euros."

In the first ten months to October, exports increased by 4%- so that exports for the year should be over the pre-crisis level.
(From tradingeconomics.com)

When the inevitable shite will hit the fan regarding how badly the Germans are lying about their banking and economic performance (30% of "retail" auto sales are to the manufacturers themselves or their dealers, for example) then we will be able to confront this crisis intelligently and not lie to ourselves about how this is a "southern" problem.

In the first 10 months of 2012, imports were down 5.6% from the year before. This drop was mostly down to lower petrol/energy import expense from the year before, given the end of the Libyan War and the resumption of our oil and gas supply from the North African country.

I just don't think you are doing what is needed to end this crisis as quickly as possible, which is a shame, as your room for manoeuvre is still so much bigger than Spain's, not to mention Greece's and Portugal's.

You didn't tackle the necessary reforms under Berlusconi, then Monti basically stopped reforming once the ECB had announced massive interventions in the bond markets (if needed), and if Bersani will put his program into practice, Italy's long slide will continue.

This crisis isn't merely about public finances, but about the structural lack of competitiveness of a large number of euro zone countries, among them Italy.

Italian tax is fiendishly complex and guarded by a phalanx of commercialistas (accountants) who seem to need 'a friend' in the Agenzia della Entrata to solve tax issues for even simple businesses.
Tax collection would improve if
1/ the average Joe could fill in their returns on-line
2/ The tax authorities were obliged to help citizens legally minimise their taxes (at the moment they are paid a bonus to catch 'dodgers' which probably leads to oppression of the weak
3/ a lower rate would obviously encourage more compliance.

Mario Ferretti - expenditure tax looks just like IVA (VAT) to me

Hitchslap - the self-employed are subjected to PAYE - called 'ritenuta da conto' at 20% and is applied to invoices.
Of course this only covers invoices.

Sorry, but you are quite wrong. VAT is on individual sales and is owed by sellers. It's in fact a sort of sales tax. An expenditure tax is owed by families on total (yearly) family expenditure. Depending on the latter's definition, it might then be a tax on total consumption (income less savings). Anyway, while VAT is an indirect tax, an expenditure tax is a direct one.

Italian Tax laws are not that complicated. There is a progressive tax on declared income, there are credits and rite off’s for business related expenses, dependents, medical bills etc. and in some cases even on mortgage interest if the property falls into the category of depressed area’s ( zone depresse).
I suspect the real reason that the fisco italiano has not automated the system is to save jobs . There is enough unemployment in Italy without having to put tens of thousands of ragionieri out of business. Just a thought.

That of course is part of Italy's problem. Something that I see replicated across mainland Europe. Everyone's job is a guild that should be protected from competition, pharmacists, lawyers, taxi drivers the list is endless.

I'm in a profession that benefits from legislative barriers to entry doesn't mean I like it but I have the opportunity to earn more than I would if there was more competition.

The problem with the backward notion of protecting guilds, trades and professions is that the whole country is all the poorer for it.

I am delighted to read that you agree with my premise but I am not too sure about your assertion that protecting certain segments of the society would necessarily make the country poorer. Can you elaborate?

Now we are absolutely into another area ripe for improvement - why use 'notaios' (notaries) now that the majority of Italians can read and write. They should be consigned to history... and why does every person need to registered under a profession... as I teach English, translate, edit, offer financial consulting and look after my children this fits neatly into the 'translator' register for me to declare my profession !!! Italy has so many advantages and hard working people why make them slaves to an antiquated concept of lifetime employment in a single category.

Happy to. Example: Real estate agents charge upwards of 7% of a house value as commission in the us. In the UK it's nearer to 1%. Guess which country requires a licence to practice? There are many examples the world over where regulation only serves to reduce choice, increase costs and stifle innovation. The uk has just passed the "tesco" law. Tesco being a big retailer. aw says that non law firms can own law firms. It means that they can offer legal services inside their supermarkets. More choice for the public in who will provide their legal services.

Except for notaio’s themselves, I don’t think many Italians would weep at the demise of their profession. Regarding the registry and only being allowed one profession at a time, I agree, why not allow people to work as many jobs as they please. I have to take issue with the slave comment though. I am self employed and have been for the past 30 years but I acknowledge that there are some who place a premium on job security, especially in a country like Italy with its chronic unemployment. They’re not really slaves, they’re just not entrepreneurs. After all, we can’t all be Lion’s Tim.

Ages ago a very well-known Cambridge economist called Niki Kaldor proposed to replace income tax with an expenditure tax, which among other things would avoid the double taxation of saving. The problem, of course, was that to get to know people's expenditures is very much harder than discovering their incomes, and so the idea had to be dropped. Now, however, Italy's tax authorities claim to have found a solution to that problem, thanks to their brand-new "redditometro". Assuming their claim to be true, why then not go the full road to Kaldor's tax — rather than following the circuitous and accident-prone route from expenditures back to estimating incomes?

Or is it too unkind to suppose that — if they are admittedly hopeless even at measuring incomes — the family expenditure estimates produced by Italy's taxmen will be just wild guesses? Only aimed at adding some extra arbitrary power for them, in order to further squeeze the bulk of non-evading Italian taxpayers, through unproven charges of tax evasion? And this to a people that, as a whole, already pays in taxes some 45% of its income?

As the latter figure shows, tax evasion is a big ethic (distribution) problem, but not in itself a threat to Italy's solvency. So it should not be used as a convenient cover for authoritarian tricks, aimed at protecting sheer money grabbing for the public sector. Indeed, it would it be both simpler and more honest to start addressing Italy's fiscal problems directly, by deep cuts into its bloated and corruption-infested public expenditure. This even Mr Monti (not to speak of most PDL, PD and SEL people) has still to summon the courage to do.

The tax problem is a classic catch 22 situation.
Example: average Joe goes to machanic for a tune up.
The mechanic says That will be 120 EURO (100+20% IVA)
You don't need a recipt, great , that will be 75 EURO cash.
Most average Joes will take the deal. Government looses 20% IVA plus 48% of undeclaired labor.So 48+20 = 68 EURO loss in tax revenue.Just how do you stop this in a country where the people think the government is a bunch of crooks and there are no quams of concience about tax evasion.

I guess this comment comes from outside Italy, and it's at the same time funny and meaningful because it identifies some moral quality in the tax evaders. Let me explain why: In Italy 120€ becomes 100€ without recipt, and not 75€.

Cash in hand transactions are by far the largest component of tax evasion figures bandied about by governments and media alike. The problem is is they never take into account the dampening effect on an economy if that VAT/IVA/etc was actually rigorously applied.
The whole basis of economics is if a price rises consumption whether in the short term or long term will fall unless perfectly inelastic. Even oxygen aren't that inelastic!

I detect a note of sarcasm in your reply. Never mind. I reread my initial posting and I see why you are confused. I assumed you knew how the game was played so I omitted some details. 75 Euro cash implies that the customer has negotiated a satisfactory discount with the merchant. After all, why should one commit tax fraud without some return? So in summing up, merchant discounts bill, puts cash in pocket, customer saves 45 euro, Fisco Italiano gets burned. Good people need a way of justifying their misdeeds So that they can sleep at night. Nothing moral about that. Merely a primeval survival mechanism.

The peculiarity that caught my attention in your comment was that in the scenario you imagine, tax evaders are much more "correct" than in the italian reality. In your example the evader share his savings with the customer. In fact he saves 23€ while the customer saves 45€.
What actually happens in Italy is that the mechanic, in a receipt-less bargain, only subtracts the IVA to the bill (customer pays 100€). There is thus a different balance in the savings (evader saves 48€ while customer 20€).
Evaders are far less "correct" in the real italian world than how you imagined, and that made me wonder about different fiscal attitudes among different countries..

You use words and phrases like correct, moral, real Italian world, what actually happens, attitudes in different countries etc. and I feel your conflict. You apparently have an elevated sense of right and wrong and that is precisely why you are missing the point man. This is a simple business transaction between two consenting adults. I hate to have to pull rank but I was a business owner in Italy for 25 years and I know how things work. Unless you can provide proof to the contrary my imaginary scenario corresponds more to Italian reality then anything you can conjure up. The bottom line is that both people are evaders. The reason that the merchant would entertain the idea of a discount is because a savvy customer would have him over a barrel. Sooner or later the merchant has to give out some invoices or else he would be on the tax man’s radar. But , since the tax system is progressive and the more you earn the higher the tax rate, it would be to his advantage to declare as little as he could get away with at the end of the fiscal year. No hard feelings. Just a straight forward transaction both people gain and the society looses.

If everyone paid their taxes in Italy, There would be no deficet.
Problem is, 50% of the economy is undeclaired income.Tax evasion is rampant because the taxes are too high. Lower the tax rate and perhaps there will be less evasion.

No, the problem is that our public burden is at 55% of gdp. If all taxes were paid in Italy the fiscal burden would reach over 65% of gdp - and our economy would utterly collapse.
Plus, those morons in Rome would STILL not be able to close the deficit. Not as long as they refuse to slash public pensions. And I do not mean my non-existent pension in 2030 - but CURRENT pensions - especially the Golden Pensions.

I would say that the dampening effect would be limited to those who earn their income mostly out side the Italian equivalent of PAYE. What would be galling is the unreformed state of taxation and public spending alongside the laudable measures.

The childbenefit went to the mother ussuallt. Even in the UK in 2013 there is non working women that would like some money of there own. When i a child my father would be skint of have spend money wastefully then childbenefit a good way to pay for shopping.

So although in theory can think well not required waste money or could adjust tax to have similar effects although not exact as we dont have a tax code that considered children not a true tax credit system that half think would have made somesense.

So although in theory can see why cancel can also see why there is issues.

To a family that recivied childbenefit even if the 20 pounds was given to husband the equall amount its ultitly would have decreased. As untilty to mother would be buy food source of income. 20 pounds to father be worth less as would be waste and to father 20 pounds of many.

As womans would care more about 20 pound. May be it would have been better to increase tax husband poltically.

But do see what mean, and although in 2013 may be not such as useful mechism but even when i was a child in 80s. A mechism to transfer wealth from husband to wife may be prefared even thow on paper be cost. Could increase total demisihing ultiley function as would be worth less to father than mother and family. Even the cost of the transfer the government fee, may come out 20 pounds less spent on something wasteful like is it better to have 20 pounds to spend on booze a week or 15 on food. Well there is not an intal democracey in family there is one in charge tradionally. So for society could be benefit overall even though a cost of the transfer.

One of teh sillness in universal credit, is that it is paid to one person. Although in many cases that may be the mother in some will not be could end up with money wasted.

Although do think scrapping child benefits feels like makes sense in theory may be, but would not in the past so with out some reseach may be wrong.